I stumbled on to a nice blog( Will Price) which gives an insight in to the way in which sales and revenue model needs to be designed to use and pitch to the investors.

Sales Forecasting:
In this model, future bookings are NOT a function of market share, size, and penetration rates ($500m market x .005 penetration, or $2.5m) but rather of how many mature sales reps are in the company and the expected sales rep quota and productivity.

First Model Bookings
Bookings = mature reps x quota per rep x productivity
Bookings = purchase orders
Mature reps = the number of reps with sufficient market and product experience to be effective (typically six months with the company)
Quota = bookings quota per year (typically $1-2m per rep in a start-up, and $2+m per rep in a mature company)
Productivity = percent of total quota achieved, on average, by the sales force
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Then Assume Bookings Mix and Revenue Recognition Policy**
To get to revenue, we then need to assume 1) a revenue recognition policy and 2) a bookings mix across license, maintenance, and professional services. This mix is typically 70% license, 15% maintenance, and 15% professional services.

Wrt revenue recognition, license revenue is recognized at the time of sale, while maintenance and professional services revenues are recognized pro-rata over the course of the year/project.

Sales Management:

Top leaders must constantly evaluate where an opportunity is relative to the key sales milestones and if sales reps are realistically categorizing various opportunities.

Sample Pipeline by Sales Stage

  • Prospect New (10% probability - telemarketing lead or tradeshow follow-up)

  • Prospect Engaged (20% probability - webex, phone contact, early requirements discovery)

  • Technical Evaluation (30% probability - demo/presentation completed, NDA executed)

  • Budget Qualification (40% probability - major discovery requirements phase)

  • Proposal Submitted (50% probability - confirm budget, test commitment)

  • Technically Selected (60% probability - building ROI analysis with customer)

  • Contract Negotiations (70% probability - reviewing proposals, technically selected)

  • Getting Final Signatures (80% probability - selected, budget confirmed)

  • In Purchasing (90% probability - waiting for fax to ring!)

  • Closed (100% - purchase order in house!)

When forecasting revenue, try to match each sales engagement against the milestones/stages listed above